The State Bank of Pakistan (SBP) has announced a new directive requiring Islamic Banking Institutions (IBIs) to pay profits on their PKR saving deposits at a rate equivalent to at least 75% of the weighted average gross yield of all pools within an IBI. This directive excludes deposits from financial institutions, public sector enterprises, and public limited companies.

To calculate the gross yield of each pool, IBIs must divide the monthly gross earnings of the pool by the monthly average assets of the pool, excluding fixed assets. Notably, pools created for Shariah-compliant standing ceiling facilities and Shariah-compliant open market operations (OMOs) will be excluded from the calculation of the weighted average gross yield.

In line with these changes, the SBP has revised the “Instructions for Profit & Loss Distribution and Pool Management for IBIs,” originally issued via IBD Circular No. 03 on November 19, 2012, and IBD Circular Letter No. 01 on January 01, 2013. The revisions include:

Deletion of Clause 4.2.3: This clause has been removed entirely.

Amendment to Clause 5.2.1: The clause now states that an IBI may forego a portion of its Mudarib share as hiba to meet market expectations if the returns from the pool are lower than expected. However, IBIs maintaining a Profit Equalization Reserve (PER) will only reduce their Mudarib share if the PER is insufficient to enhance profit payouts to depositors.

Amendment to Clause 5.2.2: This clause now allows IBIs to give hiba to saving account depositors to meet the minimum profit rate requirement.

These new instructions will take effect on January 01, 2025, marking a significant shift in how Islamic banks manage profit distribution to align with market expectations and regulatory requirements.